Tax changes: how will ‘worse-off Wednesday’ affect you?

The main changes

The personal allowance has risen by £1000. This means people can now earn £7,475 without paying any tax.

But at the other end of the scale more people will become high rate tax payers because the basic limit has fallen from £37,400 to £35,001.

National Insurance contributions will increase by 1 per cent but there will be a rise in the number of low earners exempt from paying.

Linking increases in some benefits to the Consumer Prices Index (CPI) rather than the Retail Prices Index (RPI) will mean payments will rise by less compared to previous years.

The questions

Anita Edmunds (via Facebook): My partner is on £13,000. With NI up but the personal tax allowance lifted will his take home pay be more or less?

Mike’s verdict: “Anita’s partner will save £200 tax because of the £1,000 personal allowance increase, and save £108 National Insurance. Don’t spend it all at once!”

Anna Smith (In person): If I work but my partner is not in full-time employment, are we better or worse off under the new working tax/child tax credit system? I earn below £44,000 and my partner earns less than £10,000 as a child minder. Our child is three.

Mike’s verdict: “You will both benefit from the £200 per annum (pa) income tax saving from the £1,000 increase in personal allowances . You will be worse off from the NIC increase of 1 per cent but your partner will be better off because of the increase of £1,500 in the NIC lower threshold below which you do not pay NIC.

“Because your joint income is above £40,000 I think you will lose the £545 family element of the child tax credit and I doubt if you qualify for the working tax credit. Overall I think you will come out about all square, but remember that VAT is probably costing you about £450 more and other costs are rising, so nothing to celebrate yet.”

Roger O Thornhill (via Twitter): I have a question about SP1/09. Does the concession allowing people to continue to use SP5/84 in 2009/10 also apply to 2010/11?

Mike’s verdict: “SP 5/84 was withdrawn on 6th April 2009 and incorporated into SP 1/09. It applies to employees resident in the UK but not ordinarily resident and how they are taxed on funds remitted to the UK. I do not think it has been withdrawn.”

Catherine Bruce (via Twitter): I work 20 hrs per week paid then do voluntary work for 20 hours. Am I entitled to any benefits? I have never claimed before. I earn £170/week and live with my parents. I have no children. Will I be better off after today?

Mike’s verdict: “Well done. I think the PM wants more of us to follow your example and take on voluntary work. You will save income tax of £200 and £150 in National Insurance after today. It may be that you should already qualify for some of the basic element after abatement, possibly about £900pa.”

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